Question

1) How is working capital calculated?

	a.	current assets * current liabilities
	b.	current assets minus current liabilities
	c.	current assets plus current liabilities
	d.	current assets / current liabilities

2) Which of the following evaluates data over a period of time?

	a.	ratio analysis
	b.	financial analysis
	c.	vertical analysis
	d.	horizontal analysis

3) Which of the following applies to ratio analysis?

	a.	it uses financial statement data from the same accounts and compares it to different years
	b.	it eliminates the size difference
	c.	it uses financial statement data from the same year but compares it to different accounts
	d.	it is used to evaluate profitability, liquidity, and solvency

Answer 1

1). Answer is b). Current Assets minus current liabilities.
Working capital is calculated as := Current Assets - Current Liabilities

2). Answer is d). Horizontal analysis.
Horizontal analysis compares and evaluates data of different years.

3). Answer is d). It is used to evaluate profitability, liquidity, and solvency.
Ratio analysis is used to evaluate profitability, liquidity and solvency ratios which includes several ratios such as Gross profit ratio, net profit ratio, Inventory turnover ratio, Current Ratio, Quick Ratio etc.